… and the one alternative that practically nobody thinks about.
Sometime between 1483 and 1485, a Genoese businessman named Cristoforo Colombo had an opportunity to pitch his idea to King John II of Portugal.
This period of time is known to historians as the “Age of Discovery.” A time when European seafarers explored the world to find new sea routes.
These folks were the equivalent of today’s Internet hi-tech entrepreneurs, notorious for their bold, absurdly expensive, and extremely risky ideas that often ended in disastrous (and, at the time, deadly).
Due to the enormous risk involved in ventures, these medieval “venture capitalists” were usually sponsored by royal families.
In the 15th century, a race developed between European kingdoms to be the first to claim the most overseas territories.
Portugal was in the lead at the time – it was the Silicon Valley of the time. Prince Henry the Navigator had been discovering parts of the Atlantic and West Africa since 1430.
Knowing this, Colombo first went to the King of Portugal with his proposal: his idea was a 12-month voyage across the Atlantic to reach Asia and then return to Portugal.
The king liked the idea, but his advisers ultimately rejected the idea, believing that Colombo’s predictions were too far-fetched and that the whole endeavor was too expensive and too risky.
(The advisors were actually right. Colombo had actually miscalculated and underestimated the distance by almost four times. What nobody expected, however, was that an entire continent lay between them.)
So Colombo went to the United Kingdom of Castile and Aragon in what is now Spain.
Back then, Spain was what China is today: It was rapidly rising and everyone knew that sooner or later Spain would eventually become the dominant superpower.
It took a few years. But finally, in 1492, the monarch Ferdinand and his Isabella paid for the venture of Cristoforo Colombo, now known as Christopher Columbus.
Christopher Columbus' flagship Santa Maria
Although the voyage originally planned or hoped for by the “investors” failed, Columbus at least demonstrated that there was gigantic potential on the other side of the Atlantic.
So Spain sent more ships and financed new expeditions. Within 50 years they controlled almost all of what is now Latin America.
The biggest prize that Spain won was the new areas of gold and silver mines.
The Spanish government has meticulously recorded the yield of South America’s gold mines, and modern-day historians estimate that tens of millions of kilos of gold and silver were mined – worth several trillions of euros today.
Thanks to this gold, Spain rose to become the dominant power in Europe, following the age-old rule: “he who has the gold makes the rules”.
Our current system is completely different. We have given patronage of our money to a committee of unelected bureaucrats who create trillions of euros, dollars, yen, etc. out of “nowhere.”
From 2015 to 2018, the European Central Bank acquired securities worth an incredible 2.6 trillion euros, of which around 2.1 trillion euros were government bonds from euro zone member states. With money that she printed “just like that”. The US Federal Reserve recently announced plans to lend $60 billion a month to the US government.
What value can money have when it can be created and loaned out of practically nothing by a government or bank for free?
If you or I do that, we’ll go to jail for counterfeiting. When the central bank does this, it’s called “quantitative easing.”
THINK ABOUT THIS:
2018 WAS A GOOD YEAR FOR THE GERMAN ECONOMY.
The German economy achieved rising values. The stock market achieved very good values. There were no major natural disasters, crises or wars.
At the end of 2018, the national debt in Germany was still around 1.92 trillion euros, despite a repayment.
Nevertheless, there will be no increase in the key interest rate, because that would suddenly mean that the government debt would have to be repaid. Europe and Japan have already introduced negative interest rates.
The bottom line is that professionals know that our currencies do not have strong long-term foundations. Paying back at the current rate would take several hundred years. And that’s when you consider that last year, for the first time in a long time, less debt was incurred.
It’s even worse in the USA: In 2018, the USA had one of the strongest economic years with the highest economic output and highest tax revenues of the last 20 years.
Even so, the US debt increased by $1.2 billion that year. The Ministry of Finance expects similar increases in the next fiscal year, as well as in the future.
Currencies (= paper money) are de facto just zeros and ones in a computer. They no longer have any real value at all.
That’s why so many governments and central banks (particularly Russia and China) are buying tons of gold. In the truest sense of the word. There is a very interesting form of investment for smaller investors, which we will get to in a moment.
All of these factors – the debt, the deficit, the constant money printing, low or negative interest rates – all weaken the euro and the US dollar. And it won’t stop.
Governments and central banks understand this. That is why they are diversifying part of their reserve away from currencies into gold – an asset class with a 5000 year history of preservation.
One can assume with a clear conscience that the demand for gold will remain as it was. However, something with far greater potential was overlooked.
But what is really interesting is the SUPPLY of gold.
As gold mines are depleted over time, companies are constantly looking for new gold deposits…or buying up other companies that have found new gold deposits.
BUT THERE ARE PRACTICALLY NONE.
Over the past six years, average mine yields have fallen by over 30% worldwide.
The total volume of acquisitions in this sector has fallen by 67.5% from last year to today.
This shows that there simply aren’t enough new gold deposits being found to cover existing production.
A recent report by S&P predicts that gold mine yields will continue to fall over the next two years.
(The industrial service provider SNL Metals & Mining expects to reach the “Peak Gold” in 2019. By 2025, the annual gold production should then fall by a third.)
Keep in mind that current gold mine production is declining at a time when more and more governments, central banks and other rational investors are looking for ways to diversify away from fiat currencies.
This will definitely have a big impact on gold prices in the future.
BUT WHAT ARE THE ALTERNATIVES?
An absolutely undervalued and hardly noticed alternative with almost as long a history of value retention are colored gemstones.
Colored gemstones (not to be confused with diamonds), such as rubies, emeralds or sapphires, are highly interesting investments due to their beauty, scarcity and naturalness.
Scarcity and rarity are factors that give natural resources (like gold) their intrinsic value. Normal stones are not valuable simply because there are so many of them.
A comparison of the annual production volume, however, shows how rare colored gemstones, such as emeralds, actually are.
Global gold production in 2018 was 3,332.2 tons.
During the same period, about 29.6 tons of diamonds were mined. That’s almost 148 million carats (1 carat = 0.2 grams)
Global production of rough diamonds from 2004 to 2018 (in million carats)
AND COLORED GEMS?
In 2018, around 5,000 carats of top quality emeralds hit the market. That’s just a kilo. A single kilo.
The value? The retail price of a carat of a top quality emerald over 5 carats is €40,000.
That one kilo of top quality emeralds would cost close to €200,000 million on the market.
However, emeralds aren’t the only gemstones worth considering as investment gemstones. In addition to ruby and sapphire, there are over 20 different colored gemstones that can be considered as long-term investments.
“Colored gemstones are absolutely undervalued today and have a very large upside potential,” says Alexander Streeb from the German Gemstone House. “Anyone who invests in gold should definitely diversify part of their real asset portfolio into gemstones. We help our customers select and purchase quality investment colored gemstones.”
Investment grade colored gemstones are far rarer than gold or diamonds. They have an enormous value density and can be easily transported across national borders in an emergency.
Investment colored gemstones are of no interest to governments or banks due to the complicated process of valuing and purchasing, so they will remain with gold. A tremendous opportunity for the long-term investor who wants to protect his assets from devaluation, deflation or even possible currency default.
While currencies devalue, depreciate each year (inflation and deflation) or disappear altogether, gold and precious stones have outlived every currency of the last few centuries. And they will survive any current currency as well. The question is which side investors will be on when the time comes.
And there is no question IF there will be currency problems. The only question is when.